Unit IV Contract of Agency

Introduction
The Law relating to agency is contained in the chapter X (Sec. 182-238) of the Indian Contract Act, 1872. An agent is a person employed to do any act for another, or to represent another in dealings with third persons (Sec.182) The person for whom such act is done, or who is so represented is called as the principal. An agent is merely a connecting link between the Principal and the third parties.

Who can employ an agent?

Any person who is of the age of majority according to the Law to which he is subject, and who is of sound mind, may employ an agent (Sec. 183). A person such as a lunatic, minor or drunken person cannot employ an agent.

Creation of Agency
The relationship of Principal and Agent may arise by:
Express Agreement Implied Agreement Ratification Operation of Law.

Creation of Agency
Agency by express agreement The usual form of a written contract of agency is the power of attorney on a stamped paper as a formal instrument. Agency by implied agreement It arises from the conduct, situation, or relationship of the parties and also may be accounted as the circumstances of the case (Sec. 187)

Creation of Agency
Agency by implied agreement
Agency by estoppel Agency by holding out Agency by necessity

Agency by Ratification A person may act on behalf of another without his knowledge or consent if the agent is ratified by the principal.

Creation of Agency
Requisites of Valid Ratification:
The agent must purport to act as agent for a principal who is in contemplation and is identifiable at the time of the contract. The principal must be in existence at the time of the contract. The principal must have contractual capacity both at the time of contract and at the time of ratification. Ratification must be with full of knowledge of facts, in reasonable time. The act must be lawful and to be communicated to the party who is sought to do after ratification.

Creation of Agency
Agency by Operation of Law
When a company is formed, its promoters are its agents by operation of Law.

Kinds of Agents
Sub Agent: A Sub-Agent is a person employed by and acting under the control of the original agent in the business of the agency. (Sec. 191) Co-Agent or Substituted Agent: He is the agent of the principal, though he is named at the request of the principal, by the agents.

Relations of Principal and Agent

Duties of an agent
To carryout the work undertaken according to the directions given by the Principal (Sec.211). To carryout the work with reasonable care, skill and diligence (Sec.212) To render proper accounts to his Principal (Sec.213) To communicate with the principal in case of difficulty (Sec.214) Not to deal on his own account. To pay sums received for the principal (Sec. 218)

Relations of Principal and Agent

Duties of an agent
To protect & preserve the interests of the principal in case of his death and insolvency. (Sec. 209) Not to use information obtained in the course of the agency against the principal. Not to make secret profits from the agency. Not to set up an adverse title. Not to put himself in a position where interest and duty conflicts. Not to delegate authority. (Sec.190).

Relations of Principal and Agent

Rights of an agent:
Right of retainer (sec.217) Right to receive remuneration (Sec.219)/ for misconduct, no remuneration (Sec. 220) Right of Lien (Sec. 21) Right of indemnification (Sec. 222) Right of Compensation Right of stoppage in transit.

Relations of Principal and Agent

Duties of Principal:
To indemnify the agent against the consequences of all lawful acts. (Sec. 222) To indemnify the agent against the consequences of acts done in good faith (Sec. 223) To indemnify agent for injury caused by principals neglect. To pay the agent the commission or other remuneration agreed.

Relations of Principal and Agent

Rights of a Principal:
To recover damages To obtain an account of secret profits and recover them & resist a claim for remuneration. To resist agents claim for indemnity against liability incurred.

Relation of Principal with third parties

According to Sec. 226, the acts of an agent within the scope of his authority bind the principal. The authority of the agent to bind the principal may be:
Actual or real authority (Restricted) Ostensible or Apparent authority (Situational) Agents authority in an emergency.

Personal Liability of an agent

An agent is personally liable when
The contract expressly provides. The agent acts for a foreign principal. He acts for an undisclosed principal. He acts for a principal who cannot be sued. Signs a contract in his own name. Acts for a principal not in existence.

 An agent is personally liable when

He is liable for breach of warranty of authority. He receives or pays money by mistake or fraud. His authority is coupled with interest. Where the trade usage or custom makes him personally liable.

Termination of Contract of Agency

An agency contract is similar to other contracts in that it can be termianted by:
Acts of the parties Operation of Law

Once an agency relationship is terminated, the agent can no longer represent the principal or bind the principal to contracts.

Termination of Contract of Agency

Termination by Acts of the parties
An agency may be terminated by the following acts of the parties:

Mutual agreement Lapse of time Purpose achieved Occurrence of a specified event

Termination of Contract of Agency

Termination by Operation of Law:
An agency is terminated by operation of Law by
Death of the principal or agent Insanity of the principal or agent Bankruptacy of the principal Impossibility of performance Changed circumstances War between the principals and agents countries

Termination of Contract of Agency

Irrevocable Agency:
An agency coupled with an interest of:
Special type of agency relationship Not terminated by the death or incapacity of either the principal or the agent Terminates only when the agents obligations are performed.

Termination of Contract of Agency

Wrongful termination of an agency:
The termination of an agency contract in violation of the terms of the agency contract. The non breaching party may recover damages from the breaching party. The distinction between the power and the right to terminate an agency is critical.

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